Indian Retailer

The transformation of retail in the post-liberalisation decade was dramatic. It not only forever changed our consumption habits and patterns, but also left indelible imprints on the landscape of our cities in the form of monstrous malls and superstores.

THE FIRE’S HERE

Organised retail grew at a blistering pace. In 2000, it was so small that formal estimates of the industry’s size are unavailable. But in 2002, it grew to a $2-billion industry. Today, according to consultant KPMG, the sector has an annual turnover of $37 billion, while the retail industry is at about $350 billion. This year, consultant AT Kearney ranked India as the most attractive emerging retail destination in the world

THE RISE OF ORGANISED RETAIL

In 2000, today’s marquee retail chains were fledgling operations, with one or two stores. Piramal Group’s Crossroads, considered India’s first mall, started operations in 1999. For retail chains such as Pantaloons, Big Bazaar, Shoppers’ Stop, Spencers and FoodWorld, it was a decade of scorching growth

Big profits spawned ambitious expansion plans, many of which ran into roadblocks when real estate prices zoomed ahead of the economy. Retailers started hurting further when consumer confidence levels took a hit following a nasty economic downturn in major Western economies in September 2008. Some retailers, who did not recast plans in time or weren’t nimble enough, went out of business, or are teetering on the verge of insolvency

The decade that created a major new industry is ending with many of the players in the sector in disarray

POLITICS AND FDI

The rise of organised retail and the thorny issue of foreign direct investment made headlines as small ‘kirana’ store owners’ concern that organised retail would put them out of business became a political issue. Violent protests erupted across the country; Uttar Pradesh even banned the operations of Reliance Retail

Global majors such as Wal-Mart and Carrefour, facing slowing growth in home markets, forged partnerships in India, where foreign capital is allowed only in cash and carry stores, or stores catering to other businesses and not the end consumer

ET Comment

FDI in retail a distant dream

Foreign Direct investment in multi brand outlets will continue to be a political hot potato even as domestic retailers shed their animosity towards their foreign counterparts and say they can benefit from the transfer of technology, superior supply chain management and logistics expertise, apart from capital, of foreign retail groups. The next two years will see consolidation in the Indian market. Chains with less than 100 stores will either merge with large players or shut shop. Furthermore, shoppers are unlikely to see the mindless expansion of the past two years.

Walmart has selected three IT vendors in India — Infosys Technologies, Cognizant Technology Solutions and UST Global — for multi-year contracts worth over $600 million (around Rs 2,750 crore).

The amount is roughly equivalent to the value of goods — textiles, handicrafts and other products — that the world's largest retailer sources from India every year.

This development is expected to boost the IT outsourcing landscape in India, given that Walmart typically prefers to develop its retail applications in-house. Walmart gradually started buying packaged retail applications from leading software vendors such as Oracle, HP and SAP only towards the end of 2007. It had, however, given Infosys and Cognizant pilot projects about five months ago.

Initially, the three vendors are expected to earn Rs 250 crore to Rs 300 crore, each, annually. The figure is set to grow as Walmart increases outsourcing of work from its main merchandising division. Infosys and Cognizant are expected to garner a larger share of the pie between them.

“What is more important is that these three vendors have now got a ticket to be in the club of Walmart's list of preferred vendors which will help them in growing this account in the long-run,” said a source close to the development.

According to the contract, Infosys and Cognizant will be responsible for application development and support, while UST Global will be responsible for specific testing of these applications.

Asked about the deal, Infosys and Cognizant declined to comment. “As a policy, we do not comment on speculation in the marketplace,” spokespeople from both companies said. A UST Global spokesperson in India said the company does not comment on any client specific information as “we have non-disclosure agreements with most of our clients”.

UST Global is part of the $6 billion US-based business conglomerate Comcraft Group, with a major presence in India.

Walmart's media relations director John Simley replying to an e-mailed query said: “We have a large and growing business and productive relationship with many Indian companies. We do not comment on speculations about the nature of any business relationship.”

Walmart, the largest private employer and grocery retailer in the US with revenues of $404 billion (2009), selected the vendors after a competitive bidding process in which most Indian IT services companies participated, except TCS, India’s largest IT services firm.

TCS failed to qualify for the bid because it has an exclusive partnership with Target, another American retailer, who is into direct competition with Walmart. Among the bidding companies, Walmart shortlisted six contenders of which three were finalised based on their level of competency in various processes.

Unlike other retailers, Walmart does not want to open its own captive centre in India, even though the company has established a huge sourcing office in Bangalore sometime back.

Some of the world’s leading retailers like Tesco, Target and Supervalu have their own software development centres in India. Tesco’s Hindustan Service Centre which went live in May 2004, employs close to 3,000 people. In 2006, Supervalu which is the third-largest grocery retail chain in the US, also set up a captive development centre in India for new applications development, technical operations and testing of applications.

The Timberland Company, a leading outdoor footwear and apparel company, on Monday announced an exclusive partnership with Reliance Brands Ltd, a part of Reliance Industries, to distribute Timberland footwear and apparel in the Indian market.

Through the collaboration, Timberland products will be available through Timberland retail stores and premium department stores in major cities throughout India, a press release issued here stated.

The Timberland brand represents four decades of product engineering and innovation, and a deep commitment to preserving the outdoors for which their products are designed, it said.

“With rapidly-growing fashion and retail sectors, we believe India will become a key market for us. Reliance Brands has a wealth of experience in launching and successfully distributing international brands in India, Timberland President and CEO, Jeff Sw artz, said.

“They have a clear understanding of the Timberland brand and consumer, and are as committed as we are to our ideology and passion for the outdoors,” he added.

Spencer’s Retail, a leading Indian retail company, will soon launch private label processed food products like potato chips, biscuits, pasta and is currently testing standalone stores of fish and meat.

“In fast moving consumer goods (FMCG), we want to quadrapule contribution from private labels in the next 18 months. We enjoy 40% share in the nectar category in juices. We are launching potato chips, biscuits, pasta and so on. We are testing standalone stores of fish and meat,” Mr. Vineet Kapila, President,Spencer's Retail, said.

Mr. Kapila said that the growth primarily depends on how much more space you have added and what is your same-store sales growth. While the latter is going up, the amount of sales has not gone up significantly; we have not added much, as we were addressing challenges before us. But we will add space now. In food and grocery, we are seeing same-store growth ranging from single digits to double digits. But we are struggling in discretionary verticals such as durables. There are challenges on margins, too — we are not getting the kind of margins we would want to have.

“We are focusing more on category margins, category assortments and so on to build top line and margins. We are building partnership, strengthening our private labels portfolio, choosing geographies carefully, building back-end in certain categories to improve our margins,” Mr. Kapila said.

He said, “We neither want be nor do we aspire to be the biggest retail player in the country. We want to be among top three in whichever market we enter in. Based on this criteria, we expand or vacate. We will open larger stores. Currently, we have an equal number of large and small stores. Going forward, it will be more skewed towards large stores, which will be 70-80% of our store count”.

“In the past 12-18 months, we had thought hard on these, such as what cities to enter, size of stores to be opened, cost structures, including rentals, and so on and rectified these. We also built a strong technology platform to link all of this. Till the challenges were understood and corrected, there was no point in going ahead with expansion,” Mr. Kapila added.

Aditya Birla Retail, the country’s second biggest supermarket operator, is considering an initial public offer (IPO) and will time it as soon as the company starts spinning profits.

“We will definitely be open to an IPO but it will be closer to the time of profitabillity... Around 2012 or maybe even before that, when we sight profitability,” Aditya Birla Retail Ltd (ABRL) CEO Thomas Varghese told PTI here.

He said the company had still not determined the amount of equity it would dilute.

“We want to get the maximum value for the equity we have and that we will get only when we are able to show profitability and demonstrate long-term growth potential,” Varghese said.

The company, which operates over 650 supermarkets and three hypermarkets across the country, is also open to bringing financial investors on board.

“We are not opposed to diluting our stake marginally to give it to a private equity player, as long as his background profile meets our own aspirations. We want a passive financial investor,” he said.

Varghese has charted an ambitious growth plan for the company over the next five-six years and plans to make Aditya Birla Retail a $2-billion entity by 2015-16.

“We are resizing the supermarket business. Our network will have 1,600 or 1,700 supermarkets by 2015-2016, hopefully. And, we should have 80-100 hypermarkets by then,” Varghese said.

The mom-and-pop store chain is present in 14 Indian states with major operations in the south — Karnataka, Andhra Pradesh, Tamil Nadu and Kerala.

“Our strategy at this point in time is to deepen our cluster. We are hoping that most of our supermarket networks will become Ebitda-positive this year and that as a retail company, we will become Ebitda-positive in 2012, which will be our fifth year of operation,” Varghese said.

ABRL has a whopping count of 160 supermarkets in Andhra Pradesh alone, while the Karnataka network boasts of 107 outlets. The company recently rolled out a hypermarket in Indore, in addition to the existing ones at Baroda and Mysore.

“We will probably close the year with 680-690 stores. Not more than that, because we are planning to wind up quite a large number of stores even now, as part of our cleaning up process,” he said.

“We are already careful and not putting up stores which we think will not turn profitable within a year’s time,” Varghese added.

ABRL is eyeing a sales turnover of about Rs 1,600-1,700-crore in FY10, a 45 per cent jump in growth compared to the previous year.